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A tough road ahead for the UPA - Views on News from Equitymaster
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  • May 19, 2009

    A tough road ahead for the UPA

    Will UPA spur India's growth trajectory?
    Now that the UPA has come into power with a resounding win in the general elections, it has much work ahead of it to ensure that India's growth trajectory continues. What is more important to note is that it has freed itself from the shackles of the Left, which means that it has that much more freedom to push ahead with some much needed reforms. Hence, expectations from the government on this front will now be higher. Besides bolstering the infrastructure, the government will also have to arrest the deterioration that is taking place in its finances. And the recession globally is still far from over.

    Hence, once the euphoria dies down, the government will quickly have to get its act together. It is expected that with a stable government now at the Centre, foreign direct investments (FDI) will pour into India with renewed vigour. Ensuring rural growth will also be an important priority on the UPA's agenda. Ramping up infrastructure will also have to move up a notch if strong growth in India's GDP on a consistent basis has to be envisaged. Hence, there are high expectations from the UPA and if it is unable to set the reform process going, then this time around it will have only itself to blame.

    The resurgence of Asian economies
    Besides the US and European economies, the global economic slowdown has left no stone unturned in hampering the Asian economies as well. However, as per an article in the Economist, Asian countries are likely to come back strongly despite their heavy dependence on exports to the US and Europe. Barring India and China, both of which still managed to do reasonably well, the rest of the emerging Asia GDP plunged by an annualised 15% in the fourth quarter of 2008. And the IMF has not painted a pretty picture in the next year either. However, despite the subdued growth of exports, there are reasons why the Asian economies will bounce back going ahead.

    One of them is that the fiscal stimulus in Asia has been bigger than in the other economies. For instance, as stated in the Economist, China, Japan, Singapore, South Korea, Taiwan and Malaysia have all announced fiscal packages of more than 4% of GDP for 2009, which is twice as large as America's stimulus this year. What's important to note is that Asians in the past have saved considerably more than the Americans. This means that additional income, which will accrue to the former as a consequence of these stimulus measures, could be spent rather than saved thereby bolstering consumption. In the longer term, however, the key to growth in Asia are various steps that the Asian governments will take in boosting infrastructure.

    As the Economist states that even if exports contribute nothing to growth, if the domestic demand grows at the same rate as it has done in the past five years, then emerging economies in Asia could witness an annual growth of almost 7% over the next five years. While this may not be as good as the growth logged in the past couple of years, it is definitely much better than what the US and European economies could hope to achieve.



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